A large and unwieldy tax bill was signed into law, drafted quickly and is bringing large changes to how American businesses and Americans pay their taxes. But what will it mean to you, your paycheck and your family?
The Chicago Tribune takes a detailed look at how the new tax law will impact most Americans during the course of the next year and in 2019, in “What happens next with the Republican tax plan, month by month.”
There are a couple of things to keep in mind. One is that the details won’t be ironed out until the IRS releases new regulations based on the changes that Congress made. These are expected to come out throughout the coming year. Second, as with any tax discussion, you should speak with your tax advisor about your particular situation.
Let’s look at what happens when, as we know it now:
January 2018: The new tax law goes into effect.
Speak with tax advisers early in the year to plan for how the new law will impact you. One change starting in January is an expansion of the 529 College Savings Plans. These used to be reserved for saving money for college, but the new law expands their use to also include paying for K-12 education.
If you're looking to buy or refinance a house, the mortgage interest deduction will be capped at $750,000 as of the first of the year—not $1 million. If you purchase a new house or refinance, there will be some different considerations.
The estate tax threshold goes up.
Businesses will start seeing lower tax rates as part of the Republican plan “trickle down” theory of economics. Some stockholders will also likely see benefits as companies buy back stock.
February 2018: The IRS will publish new tax rates. The tax code changes will also impact your paycheck, so your W-4s may require tweaking. In January, the amount that's withheld will likely be too high, since most people are getting a tax cut. However, we won't know until February when the IRS releases the new rates about how much you're overpaying. (You'll get those overpayments back after you file in 2019.) Once the IRS publishes the new rates, you'll have fewer dollars taken out of your paycheck in taxes.
April 2018: File your taxes. There aren’t too many changes here, because you're paying on your 2017 earnings.
Before the end of 2018: Consider how to prepay alimony before the end of 2018. Your ability to deduct that payment will end beginning in 2019. You may want to ask the judge if you can pay more in 2018 to claim the deduction on that year's taxes.
January 2019: The Obamacare individual mandate ends. The requirement that you either have insurance coverage or pay a fine is eliminated, so you can just not have medical insurance and not have to pay extra on your taxes.
April 2019: File your taxes. You'll get more money back after filing your taxes, because of your overpayment in January and February of 2018. The alternative minimum tax (AMT) also goes up at this time.
2026: Individual tax cuts expire, unless they’re renewed by Congress. Remember that any law that can be created can also be unmade, and it is likely that there will be changes between now and 2026.
Speak with an experienced estate planning attorney about how these changes may impact your estate plan and your tax planning. There may be new opportunities that did not exist before, but you want to make sure they work with your overall estate plan.
Reference: Chicago Tribune (December 23, 2017) “What happens next with the Republican tax plan, month by month”